Why My First House Was a Horrible Investment

At 21 I had skipped out on college (I figured a career in sales would always allow me to control my income, and fortunately no degree was required to be a top sales person) and I immediately went to work so that I could buy my first house.

When I set my mind on achieving something, I will move mountains to achieve that goal. I believed that owning my own home would not only give me a sense of achievement, but also prove to myself that I could figure out the real estate investing game and make lots of money. Little did I know that it purchasing this house would completely change my life.

I worked two jobs to be able to save enough for this purchase. In the mornings I managed an espresso stand, working 5am - 1pm. Then 3-4 days a week I worked at restaurant, often working from 3pm - midnight. The days were long and at times I lacked sleep and was physically exhausted, but I made sure that all of my customers knew that I was doing this so that I could achieve my goal of home ownership.

Here was the plan: I was going to buy a house, and in a year refinance and take the equity to buy another, nicer place and rent this one out. Essentially what everyone else was doing in 2007.

When I felt like I was ready to purchase, I decided to purchase with my boyfriend at the time. We filled out a loan application for a mortgage to see how much we could afford and to get an idea of the loan programs. For the first time in my life, I was told what my credit score was, and it was not good! I was so embarrassed when I was told what my score was, 550. After hearing that, I vowed to never again be in the dark about my financial situation, and to make it a point to achieve the highest credit score possible [note: It was less than 3 years later that I remember sitting at a local credit union to refinance an auto loan and was told by the loan officer that I had the highest credit score she had ever seen for a person my age]

The loan officer shared that it was no problem getting a loan, and I was even surprised to hear that I did not need to use any of my hard earned savings for a down payment, since most buyers did zero down loans [note: This was 2007].

We moved forward knowing that we could purchase up to $250,000 and started looking for a home. At the time, there might have been 3 houses to choose from in all of North Snohomish County. We looked at the best one of the three, and wrote an offer that night. About 30 days later we were the proud owners of a 1901 2 bedroom [sort of 2 bedroom, one was in the attic and the other was on the main level but did not have a closet] 1 bath house with no garage and a horribly overgrown yard.

For two 21 year olds, the $1981 per month payment was a big deal. We had been paying $900 per month for rent on a very nice basement apartment in a high end neighborhood in Everett. We were constantly putting all of our extra money toward this place. Tearing out walls, painting, working with a dysfunctional kitchen, re-wiring the electrical, and to add onto all of that, the furnace went out within the first month. Basically I had completely underestimated the amount that it would take to make this place functional.

So here’s what actually happened:

Within a year of ownership and dumping what felt like tens of thousands of dollars into this place, the market took a turn… for the worse. Suddenly my brilliant idea of taking the equity out of this place to buy another was not going to happen, at least anytime soon. When my relationship ended, my boyfriend stayed and continued to work on it until 2011 when he ended up buying me out of the property for zero profit [and I was happy to accept that deal since the house was still not worth what we bought it for].

So here were my lessons learned:

1. Never buy a property where it is a success only if it appreciates. Now I expect cash flow, and appreciation is a bonus.
2. Older houses need ALOT of work. More than most people realize.
3. We went from $900 in rent to $1981 in a mortgage, and while a payment was never missed I don’t think this is a good idea for most people. This was also an indicator of how bad of an idea it was to buy a home. If there is that big of a discrepancy from a rent to own standpoint, then it is likely best to wait to buy.
4. The house that we purchased likely would have rented for $1000 per month, yet the payment was $1981. Again, if there is such a discrepancy on owning vs renting at any given time then I suggest a person not buy.
5. Credit scores are important. While it did not matter what my score was back in 2007 [should have been a sign], it does matter now and I am so thankful that I learned this lesson early on.